Stellar Senior Living SVP and Co-Founder Adam Benton has some advice for senior living providers seeking to improve their hiring processes: Apply for a job at McDonald’s.
That’s what he did, after hearing so many times that Stellar communities were struggling to compete against fast food restaurants for workers, Benton explained during a recent SHN+ TALKS appearance.
From the experiment, he learned valuable lessons about how easy it is to apply to jobs at the Golden Arches, and how important it is to streamline the process as much as possible in senior living.
We are pleased to share the recording and this transcript of the SHN+ TALKS conversation with SHN+ members. Read on to learn about:
- Why Stellar is experiencing a “barbell” occupancy recovery
- Stellar’s plans to reach 70 communities by 2030
- The exciting fragmentation that Benton sees in senior living
- How Benton came to start Stellar with his father Evrett, former Five Star CEO
- And more
Based in Salt Lake City, Stellar Senior Living today has a portfolio of 20 communities throughout the western United States, with three more under development.
The following has been edited for clarity.
Tim Regan: How’s demand in the markets where Stellar Senior Living is operating? Just generally, what’s on your mind these days?
Adam Benton: What is on my mind these days when it comes to operating senior living? Obviously, there’s a lot of stuff and I’m sure we’ll get into it. In terms of the state of Stellar, we’re right at about 86% occupancy. As a company, we’re seeing a barbell here … You sort of expected like a normal curve to just sit right around 85%, 86% but that’s actually not the case. We’re seeing it where you have a lot of properties that are just full or are just operating incredibly well, 95% to 100%, and then some that are still lagging behind. Kind of a gap in the middle. That’s where we’re at.
We’re also generally hired to help turn around property. That’s also what creates part of that distinction. Then we’ve been seeing just net gains each month for the last, probably, six or seven months. I think that’s what you see from a lot of public company statements as well, is we’re right in line with that, but we’re just a little bit ahead in terms of the whole occupancy map.
Tim: Great. I actually want to talk about the history of Stellar Senior Living because I think it’s interesting. I believe, and correct me if I’m wrong, the company is a family affair. Your dad, Evrett, is CEO. I believe it was founded about 10 years ago, right?
Benton: Yes.
Tim: Take us back then, talk to us about the founding of the company. How did Stellar Senior Living come together?
Adam: As you know, a lot of businesses in our space are family businesses, and this is no exception. We took over our first properties August 1st of 2012. In three days, we have Stellar’s 10-year birthday. That’s a big deal in our company, and we’re having a huge event because of that.
Evrett Benton, he’s my father, he’s actually been in the space for a long time. He was an attorney, and then from there he ended up getting into the operations. He ultimately started and ran Five Star Senior Living out of Boston for about 10 years, and took that out of a bankruptcy situation, and then grew it to about 20,000 employees.
At that point, he was the chairman of Argentum, but his church asked him to basically step out and run a mission in Argentina for three years. It was a three-year commitment. It’s not something that you apply for. They just asked you to do it. He went and did that.
Then, instead of going back to his previous role, we talked about as a family potentially starting our own senior living business. I was living in New York at the time, I was working in Wall Street, and then my other partner, who is my brother-in-law, was working for Medtronic. He was a regional CFO for them and was there for about 15 years.
We didn’t know if this was going to work or not, but I came up with a big list. I was in business school at the time, and between my first and second year, came up with a big list of properties to potentially buy in the West Coast and just started cold calling people. We ended up with four assets that were troubled. We ended up purchasing those in partnership with a public real estate investment trust called Diversified Healthcare Trust. That’s what got us started. That first deal, it took us about nine months to complete. We’d actually been working for quite a while before that. Then on August 1st of 2012 is when we actually took over the reins as management.
It’s a great business. I didn’t grow up thinking I’d be in a family business. It still feels a lot like a startup. I always say this is a family startup because we started with no cash and no employees, and then just found some properties and just were barely making our lease payment, and then we had to basically improve the operations of those properties to break out a profit. We were able to do that, and that’s what actually fueled this continuous growth over the last 10 years. That’s it. Today we’re still all involved.
Tim: Great. Did you always expect to join the industry? Was that always on your mind or was that something that you were like, “That’s not me. I’m not going to do that,” and then here you are?
Adam: Look, I was working at a hedge fund and then I worked in high-frequency trading. It’s a very different industry than what we’re in today. I did not actually expect being in this. When we sat down and decided to get into it, I had to learn a lot pretty quickly about the industry, and here I am now. It’s just been a whole decade of doing this and it’s been a great, wonderful path. I found that it’s so people-focused and service-oriented and something that’s a little different than my days on Wall Street. Because of that, I’ve really enjoyed the space.
Tim: As you look ahead to the rest of this year and maybe into 2023, what are your strategic goals? What are you working on right now? Why are you pursuing those goals?
Adam: Actually, obviously, building occupancy is still a big portion of what we do. I don’t think you’ll ever get away from that. It’s the conveyor belt of the business that we’re in, which is just occupancy, just making sure that you’re keeping in front of it.
I think the thing that everyone got blindsided by was the payroll piece, just working through all of a sudden a spike in temp labor and overtime and in open positions. We’re no exception there. We are working through that.
Now, obviously, things are getting easier and better for a lot of reasons. We’ve had to do what other people have had to do, which is just intra-year increases on pay rates that are basically double, if not triple, what we normally do … it’s not something that we’re used to, so we have to make it up as we go. That’s a big challenge. We’re already seeing that subsided to some degree, but I don’t think it’s ever going away, which is just some of the challenges around payroll and labor.
Tim: I actually want to stick with something that you mentioned a little bit ago. I know that you guys work with Diversified Healthcare Trust.
Adam: DHC.
Tim: I might refer to them as that in our call today. Can you talk about why Stellar was a good fit for that segment … I believe these are some former Five Star Senior Living-managed communities. When you came into those communities, what were some of the first things that you started to do there?
Adam: As you know the history, Five Star had gotten up to around 240 or 250 assets across the country, and they were all structured as a lease structure. This is probably the 2019 range. They then started running into problems where they couldn’t cover their lease payment. DHC ultimately turned all of those leases, got rid of those, expired them and turned them into a management company. Five Star, even though they own 20 of their own buildings, the rest of them, they now manage for DHC. That was step one.
Step two is then, Five Star is looking for ways to strategically streamline their operations. They actually shrunk down and they got rid of 108 assets over the last 24 months to different operators. Just like what we’ve seen with other large operators, we’re seeing a flight from large national operators to smaller regional operators. This was no different. In this instance, of those 108 assets, in talking with them, since we already had been basically operating four assets with Diversified Healthcare Trust (Nasdaq: DHC) for the last 10 years, they just sat down and talked with us about potentially taking these over.
At first, it didn’t seem like it was a fit, because although we did have some skilled exposure in our portfolio, it was not the thrust of our strategy. After thinking it over, we realized a couple of things. One is that we’re based in Utah, this is in Colorado. Most of the assets are right there and they’re assets that Evrett had some familiarity with, and that we already had some expertise in this skilled space. We decided to take those assets on. Just like everything else coming out of COVID, this was a clear turnaround situation.
We’ve made a lot of great headway since we’ve taken over. Obviously, we’ve talked a little bit about this turnaround concept. Basically, everybody in our company knows about what we call the stages of a turnaround. We think there are three.
Step one isn — and this isn’t going to sound groundbreaking, by the way — step one is team, and then step two is occupancy, and then step three is rent and expense management. The key is you have to do it in that order.
If you start trying to manage expenses immediately or boost occupancy but your team isn’t really the right team and able to handle the operational improvements, you’re not going to get anywhere. Foundationally, you got to get your team straight.
When we came in, we actually just through attrition and just changes of those 10 assets, I think we’ve had eight new executive directors. Then as far as occupancy goes, we’ve now gotten occupancy back to pre-COVID levels of 2019. There’s a huge increase there. Now, in skilled nursing, things happen a lot quicker. Now we’re just working. We believe that across the whole portfolio, we’re on stage three, which is just rent and expense management, and then breaking open a margin that got squeezed during the pandemic.
That’s where we’re at today. That’s how we got into it. It’s been a great opportunity for us to grow.
Tim: This is a really good segue into something that an audience member had a question about. What are the keys to your turnaround approach? Does wellness play any role in driving improved results? Does data play a key role, and if so, what kind of data? A few questions in there, if you have any thoughts that you can add?
Adam: If you get a little bit deeper into those three steps … we’re keeping it simple. When we look at our entire portfolio across all 27 locations, we have everybody graded as to which step we believe that they’re in. If you’re below 90% occupancy, you’re probably in step two, and you might still be actually in step one. As far as the team goes, we start with the executive director and the administrator, and then we have them build out their team as they see fit. That also could include training the team, incentivizing them properly, making sure that they have the right goals in place.
When you think about a team, there’s a lot that goes into it, and we have a lot of training around goals and incentives. That’s step one. Do you have the right people? Are they incentivized properly? Do they know what the goal is? Those goals change by property. It might be something related to temp labor management, it might be something related to occupancy.
Then on step two, when you get into the occupancy section, that does have different levers within it. If you think about occupancy, it’s just like, what can you pull to move occupancy? One is obviously just rents. Do you move rents up or down? That’s one. Two is concessions, which is a little bit different than rent, but just one month, two month, three months off, whatever that is. The third one is related to marketing. Do you want to spend more dollars on just marketing at the top of the funnel to bring people in? Then the one that we consider in the occupancy piece is related to CapEx, which is improvements. Do you add crown molding, or better carpet, or lighting? Then the last one is incentives for the team.
If you think about those five buckets— it’s rent changes, concessions, advertising spend, incentives for your team, and CapEx.
All of those are basically a cost to moving somebody in, which is now your acquisition cost. When we look at full acquisition cost, we want to make sure that we’re pushing out resources properly. You might see that you’re moving a lot of people in by pulling a certain lever, but it might be costing more than just doing better CapEx.
Then step three is rent expense and management. Let’s say you have a solid team and you’re up above 90% occupancy. Now you can actually start breathing and looking at like, well, are our units actually properly priced by unit type? Is there a studio near the front that sells like hot cakes and there’s a studio in the back corner that never moves? Then you probably need to adjust those rates. Then on the expense side, it’s just everything that you look at, every line item.
Team, occupancy, rent and expense management, a lot of things you can do within each one of those, but that’s how we view the world.
Tim: That’s great. Thank you for being so detailed. Did your family manage these communities when your father was CEO of Five Star? Was this in their portfolio back then? I guess why I’m asking this is because, was this a return to your roots or a homecoming or something?
Adam: No. I wish that I had these stories of working as a dishwasher, or a server, or a CNA as a kid, and then just working my way up from there. That is not the case. It’s just a new career. I didn’t know as much about it. We never owned anything personally as a family related to senior living. This is new for us as well. It’s a good question, but there’s not some DNA in my blood that says senior living generations back.
Tim: What are ways that you think the industry should be working right now to educate prospective residents and their families on what [senior living] is, why they will need it, and when they move into a community?
Adam: There’s a few interesting things about this. There’s a reason why A Place For Mom exists. It’s because a lot of people aren’t educated about the space, and so they need somebody to guide and help them through the process. Our salespeople, we call them family advisors for that reason. Our salespeople are family advisors because they’re advising families on this task.
Then there are purchases that are higher cost and lower frequency, and that might be a car, something like that. If you think about senior living, it is like the far corner in terms of very high cost and very low frequency. It’s something you might do only once in your lifetime.
I don’t think it’s our job to try to educate the world on what senior living is, because you’re just going to try to boil the ocean.
Instead what you do see is, let’s say you go to dinner right now today with a group of people that are in their mid-50s and 60s and there’s six couples. I will bet you that at some point someone is going to talk about dealing with a family member or a loved one that they’re trying to find care for. That is now a dinner topic that’s going to always show up for that young generation, where those kids are trying to understand, and they’re swapping ideas and stories around how to solve that.
Honestly, if you’re trying to spend a bunch of time with content trying to train people on what to do, forget about it. Instead, you just want to make sure that when people talk about you at the dinner table with your friends, that they can point out that, oh, yes, Stellar Senior Living is great, they are high quality. In that one time in your life, or maybe twice in your life when you’re actually making this decision for somebody else, that you come out positive in that light. That’s what I would think about that.
Tim: What role do you feel industry associations have in this, or do you think that is their role?
Adam: They do a great job on a lot of the fronts in terms of education. Obviously, there’s education to politicians related to PR and different types of regulations that are coming down the pipeline.
Then I think they’ve both been doing a very good job in education to potential workforce. People that maybe didn’t have that on their radar and they’re getting educated about just better job creating gateways for people to come into our industry.
I think most of the world thinks of skilled nursing when you are talking about assisted living, but you have your home and a hospital and this whole spectrum in between. We’re seeing more slices this way. It’s like 55+ and active 55+. Something that’s a little bit more is independent living with one meal and independent living with points and three meals.
That fragmentation is going to continue to go on from home to the hospital. I also think it’s going to split this direction, and you’re already seeing some of that related to, oh, this is assisted living where you can also finish a college degree, or this is assisted living specifically for Asian culture and population, or this is one related to art. You’re starting to see this double fragmentation going on. I think that that’s just to meet consumer demand and I don’t think that’s going to go away either.
If you look at the cruise industry, they have that in spades. Different cruises for different types of groups and people, and different lakes and sizes of ships. We’re seeing more and more and more of that in our industry. Then trying to then apply some level of education on top of that, it just starts to seem a little daunting.
Tim: Is there value in measuring things like wellness? I suppose there is. How do you track that kind of thing in your operations? By the way, if the audience member can clarify this question for us, write in, do so while we’re talking about this. Adam, what are your thoughts?
Adam: I think we all have this, where you’re coming in expecting something from a service or a product, and then your expectations might not even match up with what you’re really getting out of it, if that makes sense. As far as connecting wellness … that can differ for different people.
When people are coming in to tour for a property, you really have these two different buyers. You have the parent. Sometimes they’re by themselves, oftentimes they’re with a loved one, usually their oldest daughter. That’s a pretty common metric. She’s also a buyer. They want different things.
When we look at it, one of our main goals is if you’re the buyer yourself, is that we’re helping you achieve a higher level of your own life, of your goals and dreams. It’s one of our core values, which is inspiration. We inspire hopes and dreams in other people and really help them get to that point.
For the daughter, what does she want? We believe that she wants to be more like what she used to be, which is a daughter. She doesn’t want to be a caregiver or somebody that’s coming in and becoming their parent. We feel like we’re providing that service as well.
If we hit both of those, which is just helping somebody live a better life than they’re currently living before they move in, and then helping a sibling or child turn back into the role that they were in, we think we’ve achieved our goal. That’s a little different from the question, but I think that’s how we view it.
Tim: Let’s talk about staffing. What are Stellar’s challenges in staffing right now, and has anything gotten easier?
Adam: Maybe on a macro level, talking about the next 10, 15, 20 years, if you just look at the demographic trends within the United States, you’ll see that there’s a little bit of a collapse related to the workforce in our population. What that means is that the ratio of workers ages 18 to 65, versus ages under 18 or over 65, that ratio keeps getting squeezed. That’s not going to go away. That pressure will always be there. I don’t think we’re going to see any huge leaps and bounds related to technology. I could be totally wrong on this front.
Just first, let’s assume on a macro level that this pressure is always going to be there and it’s not going away for at least 20 years before I retire. At that point, the pandemic actually fast-forwarded a lot of things in many areas, but one of them is related to this pressure on just labor. Now that has eased off a bit as people come back to the workforce, for whatever reason, feeling more comfortable health-wise, burnout, or better pay. People are coming back. There’s also just a mismatch where the economy is at, where people are willing to pay the hire versus where people are at in their current jobs. There’s a lot of job switching going on.
We have to change how we think about staffing and mainly attracting, training and retaining key individuals and staff.
If you think about what’s happened on the sales side, there’s been a lot of progression and evolution around the competitiveness of sales and basically attracting people to live in your properties. All of those same lessons that we’ve learned on the sales side are going to and already are starting to occur on the labor side. When we look at labor, we look at that as another sales funnel.
How many converted to an interview, converted to onboarding paperwork and a move-in or first day all apply. Then what we did is we just took that a step further and said, well, let’s make sure that we have those metrics in front of everybody at the company. Then we’re going to have a weekly call just like we do with sales, but related to recruiting, where we’re going to be basically training on how to improve those metrics and holding ourselves accountable.
That’s something that we’ve had to do, which is basically just build out an entire training and funnel process related to hiring.
Tim: We have an audience question that fits in here so I want to ask it now. What kind of turnover do you see, and are you doing anything non-monetarily to reduce turnover?
Adam: Yes. Let’s stick with the funnel on the front end. If we relate it to sales, if you bring in people that are higher acuity and you’re dropping rate, you’ll see a higher level of turnover in your occupancy, and the same goes for hiring. Step one, before they start their first day, is that you want to feel more confident that you’re hiring somebody that fits with your culture in the building, and they’re going to stay a while.
Oftentimes when you get behind the eight-ball and start hiring out of desperation, you’re going to find that your turnover in 6, 8, 9, 12 months is just going to skyrocket. That’s just costly for everybody, residents included.
We personally believe that everybody needs a friend at their job. Everybody needs a friend.
We’re really, really big on referrals from within, attracting friends to work with each other. So that’s a big portion that’s non-monetary, but I think goes a long way.
Then, once somebody is working, everybody always says nobody leaves their job, they leave their boss. Making sure that you have the right culture and training and making people feel comfortable.
We believe that people, to feel comfortable, you need to feel like you’ve been trained for the job that you’re doing, that you’re getting recognized properly for it, and that you have a friend at work. Those are the three things that we see are important to retaining a workforce.
Turnover, by the way, is really a symptom or a byproduct for what you’re really trying to do, which is just field the floor with the best team available to care for residents.
Part of the best team includes a level of continuity where people are working together and coordinating and interacting. That’s how we view it. Again, it starts very, very early before anybody even starts their job, but attracting, training, retaining goes a long way in pushing down turnover.
Tim: Part of the reason that you’re sitting in front of me on this talk is I saw an interesting panel that you were on at the ASHA conference this year. If memory serves me correctly, I know that you and the other panelists talked a little about the need to streamline the application process in senior living. I remember you had this really interesting anecdote where you contrasted it and compared it with what some other employers were doing. I think you had specifically mentioned McDonald’s, which you found super interesting. Can you re-tread some of that ground and explain your thinking on what the senior living application process should be?
Adam: How do applicants actually find you, apply to the job? Step one is, I would encourage you to actually try to find and fully apply to one of your own jobs. Just see how difficult it is. When they’re looking at that job description, how many other jobs are they’re seeing? How does that compare? You’re marketing yourself, so that should come along the way.
You always hear our property saying, “Well, the fast food [restaurant] down the road is hiring people at a minimum of $15 an hour and we’re at $14. How can we compete?” I thought it would be good to just apply to McDonald’s, which is the closest one to me, it’s across the street here, and see how that works. What I found is that if you haven’t done this before, you should. You can apply through text. You go in and you basically text to a certain number, the McDonald’s location.
What you’ll find is that the first step of the process all the way to your interview is completely automated and that your answers are really quick and easy and you could do it between ending school and walking home. It’s just like, it’s right there. If you end up half filling it out, they’ll then follow up with the text later on. The whole thing is done through texts. Then at that point, they just ask a certain level of knockout questions.
I think you’ll find that there’s a lot of room for improvement, particularly in our industry, outside of just, “Pay, that’ll attract people.”
Tim: Do you see a world where senior living operators can actually do that McDonald’s model and get workers to basically apply over text, do it really quickly? Do you think that’s attainable?
Adam: Oh, yes, we do it today. If you’re not doing it, you should be, for a lot of reasons. The patience of somebody today is just so short.
The questions that we ask are some pretty basic knockout questions. Then at that point, we have some of our properties where it’s set up where it just automatically scheduled an interview. You just have to say, “Hey, every Tuesday from 10:00 to 2:00, I’m saying that I’m open for interviews,” and then it will just put them on your calendar, and then you’ve just gotten to the next level, and you know that this person has at least already gone through this first vetting process.
What I’ll tell you is, if you’re not doing that automated, I bet you then that every property is doing it a little bit differently, and some are better than others, and some aren’t doing it at all, and they’re just complaining that they can’t hire anybody.
That’s an easy one, where I think if you haven’t automated this, you should, and it’s something that you’re behind on at this point.
Tim: Another hot topic related to staffing is expanding the labor pool. Do you have any ideas on ways the industry should be working on this right now?
Adam: Yes. People obviously hold job fairs at the properties. I think that’s an interesting way to do it. There’s also where people are looking into going into hospitality or other types of industries that are very similar to ours and you can grab those people. I actually think that everybody knows that senior living is a growing industry and that it’s very hot and that it’s going to stay that way.
Tim: You were on Argentum’s 40 under 40 list, or you’ve got that accolade. Obviously bringing in fresh leadership, people on the executive director, the corporate level, that’s also something that I hear is very tough, especially in some very competitive markets.
How do you think the industry can better bring in a new generation of leaders?
Adam: You are starting to see that in schools, you can actually specialize or get a degree or a minor in gerontology or something related to seniors, and we’re seeing more and more people get their masters in healthcare administration. I think that schools are recognizing that there’s a need for that.
We want to get better at having a better program within our company to help people upwardly move up in their career and have a good set of people that are learning to be executive directors. That’s how we’re trying to do it today.
Tim: Great. What is your outlook for how staffing’s going to trend this year? Any of the challenges that we talked about today, do you see any of those getting easier or harder in the next 12 months?
Adam: There’s a few different things that are going towards that. One is that consumer expectations are really dropping in terms of what they think the economy is like right now. There’s a little bit of fear about where the economy is at. There’s rising inflation costs where your dollar just doesn’t go as far.
Then there’s also less fear about working because the pandemic has subsided to some degree. Those things are actually moving the right direction towards getting more people stepping into the workforce. I think that’s going to continue to get better. Then lastly is that companies like us are doing a better job of moving quicker at getting our pay rates correct to meet the market. I mean, I’m thinking it’s softening.
Tim: First future topic: Technology. As you look across all the technology offerings that you’re seeing at industry conferences and things, what’s catching your eye? Just generally, what’s on the horizon that you think is really interesting?
Adam: We rolled out a set of robot servers to about five of our locations. I posted online about that, and I was met with a surprising amount of hate.
People did not like that idea, but people at the properties love it. They just love having a little robot server going around. It does not replace all your servers. All it does is it mainly buses dirty dishes back and then it will bring some food out. It helps with travel time.
Then if you have that coordinated with your point of sales system, then that helps basically alleviate a full-time employee in the dining department. We’ve seen that had mixed results mainly because your team has to basically embrace it as part of the process.
We’ve seen all sorts of things related to socialization and seniors. I still think there’s nothing that really replaces it more than just better activities and getting people together. There is a generalization and thought that you’re going to have some Uberization; today, you have apps that already exist to where you could just stay at your home and order meals through Uber Eats or Meals on Wheels. You can get care online, and then you can order medications through PillPack. I just don’t see that getting taken away by technology.
Tim: As a really quick follow up, we got an audience question about this topic while you were talking. The question was, have you seen any technology that helps leverage human touch, make meaningful connections with staff or residents?
Adam: We’ve used a ton of different technologies in this arena. One that I really liked was called Motivosity and it was that we would give each staff member $5 and that they could only use it to give a little micro bonus to each other. When they did that, they had to apply one of our values and then say something nice. It came across in the social media feed.
Just to go along with helping people connect a little bit better, we also use LifeLoop … it’s an activities calendar, but it’s also communication with the families. We’ve been really pushing hard on getting families to log in and use it.
What do we really want? We want families to come in. We want the community to come into our building. It is a better way to advertise and communicate with the families about what’s going on and then having people come in. Those are the two that come to mind immediately in terms of helping with engagement and socialization at our properties.
Tim: What’s your strategy for growth? When I ask that, I mean, in terms of third party management, acquisition, development, and then just generally, what will we see out of Stellar Senior Living next?
Adam: Third-party management, development, and acquisition, we do all three. We tend to say that we like to have a third in each.
Right now, we have about three developments and then we have about 10, 15 third-party management, and then some that we own outright and we acquire with others, so it’s a blend. Our goal, and everybody knows this at our company, is we want to have 50 owned assets by 2030. It’s 50 by 2030, but that means we’ll probably be maybe managing an additional 20, so up to around 70 properties at that point.
We’re sitting here in the middle of 2022, so that’s a steady three to four properties a year of growth. It’s something we think is manageable that’s not going to mess with the quality of care that we offer. It’s what we’ve done in the last 10 years. We’ve averaged three properties a year.
Tim: We’ve had four consecutive quarters now, according to NIC, of average occupancy growth in the senior living industry. It sounds like things are moving in a better direction obviously than they were last year or in 2020.
Do you think that’s going to continue? What are you preparing for the rest of the year? Just generally, what are you expecting with regard to this recovery period?
Adam: Yes, we’re headed into a time of extreme growth related to demand. Obviously, there’s three factors. The big one … is baby boomers aging.
Okay, the average age today is 86 in our properties. If you take 1945 and then you add 86, that equals 2031. You’re going, “Okay, so 2031, that’s still about nine years out.” In reality, birth rates actually started picking up at the end of the silent generation which is 1937.
If you just go pull a chart of birth rates in the U.S., you’ll see that the general consensus is that everything happened after World War II, this big boom and burst, but it actually happened about eight or nine years before. If you take 1937 and you add 86 to it, now you’re sitting at 2023, so that’s next year. This trend goes 20 years straight, and you’re adding about a million more people a year that are above 75.
The second one is just people living longer. I think everyone can agree that now that you have like a handful of people that are over 100 in each one of the properties when before meeting somebody who was over 100 was an amazing day.
We’re continuing to see that grow. All those three factors continue for 20 years straight. You can draw a straight line with that. Now, as far as supply, that’s more boom-bust related to the real estate cycle.
I believe currently, we’re headed into a lower supply because it’s costing more to build than it is to buy. You generally see people slow down on new builds, as well as occupancy needs to catch up. Over the next few years, you’ll see less new builds. You’ll see occupancy move up, but then it’s just a race to continue to build properties.
Tim: Another question as you look ahead, what’s on your worry list, and then what’s on your excitement or opportunity list?
Adam: Yes, I’ve got a few worries. One of my worries is just related to people waiting too long to move in. The frailty of residents when they move in just is continuing to move up the acuity rate. That worries me for a number of reasons because the types of activities and products that you offer early on has to change. Then what else worries me is just older assets competing with newer ones.
We’re starting to see properties get, I would call it decommissioned or changed in use. I don’t think that’s going to change but that does worry me a little bit because if you think about an older asset that’s maybe 20 years old and a newer one, what you tend to find out is that most of your costs aren’t related to the cost of the building. It’s like food and payroll and those are the same between the two properties. It always surprises me that there’s not a huge differential in terms of monthly pay that a resident needs to pay to move in, but yet the quality just moves up tremendously. The newer assets tend to do better, and that worries me because it always just creates a challenge in the industry related to that, so those two the main ones.
Tim: What’s on your excitement or opportunity list? What are you excited about?
Adam: I love to see the innovation related to new products and new properties that are built. Multiple dining venues, different types of spaces to meet needs.
Then also what I talked about earlier, which is some of the segmentation even within an asset class like assisted living, to where you can go get your university degree for example, those things excite me. I’m just excited to see what people come up with that is better than what we have today and definitely better than what we’ve had 10 years ago. That’s really exciting to me.
Tim: Do you think the industry needs to self disrupt? If so, do you see any examples of this in action either at Stellar or just in the wider industry that you’d want to share?
Adam: It’s a great question and it’s something that you always have to keep an eye on. I do know that now, our business is half operations and half real estate. One of the challenges with real estate is you make a decision in how you build something and that decision lasts a long time, so it’s hard. You can come in and renovate and change units and stuff but in general, it’s actually pretty hard to shift and change as easily as a tech company could.
On the other hand, just always questioning how you do something or whether people even care about how you’re offering a product goes a long way, and we are constantly trying to ask ourselves, “Is this the right way to do things?
Oftentimes, since we grow through acquisition, I’m always surprised when we take over other properties how they’ve just kind of left a certain process a certain way for a long, long time and they haven’t really graduated to what’s available today. Whether it’s paper charting or not using a system when a system exists. That goes a long way. Now, I’m not creative enough to figure out how to do assisted living without an actual property, but I am excited to see other people with some of those levels of disruptions as they come out.
Tim: I just want to get your take on a big industry topic. It’s a story that I’ve read about a few times now. Amazon, they’ve been in the news. I’ve talked with operators about this. Some see it as a threat, some see it as an opportunity. How do you see Amazon’s expansion into health care? Is this a threat? Is this an opportunity? Is this both? What is this to you?
Adam: You gotta see it as an opportunity and you got to lean into it. These changes will happen. Amazon a couple years ago bought an entire pharmacy, so the ability to be able to get on Amazon and order your medications and have it shipped to you in a strip package is real, that exists today and Amazon owns that.
One Medical, I’ve heard of Google wanting to be able to do something similar, which is you Google like a rash on your arm and it shows up not just like a WebMD but an actual doctor that you can talk to about solving that. You might start seeing clearly Amazon is going to be moving into this medical space and you’ve just got to adapt with it. I would not think of these things as threats.
If you think of them that way, you’re going to be left behind. If you can start immediately figuring out how to incorporate that into your current operations, you’ll win and people will figure that out.
Tim: I want to thank Adam Benton [of] Stellar Senior Living for a great discussion today and for being so candid, so thank you again, Adam.
Adam: Thanks, Tim.
Companies featured in this article:
Diversified Healthcare Trust, Five Star Senior Living, LifeLoop, McDonald's, Stellar Senior Living
